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Pork Producers Should Wait to Expand

The livestock industry works on cycles of expansion and contraction. It appears 2012 may be a year of expansion for the pork industry, especially if the price of feed inputs like corn and soybean meal continue to drop. It's also usually best, according to Purdue Extension Ag Economist Chris Hurt, to be cautious. He's not convinced the time is quite right for animal agriculture to expand.

"Pork producers do not quickly forget $7 and even $8 a bushel corn prices and they should be cautious in quickly expanding herds," Hurt said. "Perhaps the best and most logical advice is for them to use the expected profitability in coming months to enhance their financial positions and to wait and see how the 2012 U.S. crops evolve before moving toward expansion in late 2012."

Hurt says that this winter hog prices are expected to trade in the mid $60/cwt. this winter and improve into the low $70/cwt. as an average for the second quarter. In the third quarter Hurt expects prices to moderate a few dollars lower and then drop into the $50/cwt. for the final quarter of 2012. Signs of expansion may begin to lower prices, which will likely continue on into 2013.

The lower prices at the end of 2012, prompted by the expected expansion in the size of the U.S. hog herd, are just one piece of a very difficult financial puzzle. Like almost everything else economic on the planet at this point, Hurt says much hinges on how Europe weathers its woes and how the United States deals with unemployment and its own long-term debt problems.

"If these worries should lead to slower or negative economic growth rates then weak consumer incomes could certainly lead to lower pork prices and of course a less favorable pork outlook," Hurt said. "Clearly this is another reason for pork producers to be hesitant in expanding production at this time."